Eric Duffy and Johnnie Gladwin operate a partnership. The partnership agreement states that the income and...
Eric Duffy and Johnnie Gladwin operate a partnership. The partnership agreement states that the income and loss will be shared based on the ratio of their beginning capital balances. At the beginning of the year, Duffy had a capital balance of $80,000 and Gladwin had a capital balance of $20,000. The partnership's income statement reported net income of $90,000 for the year ending December 31. Prepare the December 31 journal entry that would be required to close the Income Summary account and allocate the net income to the two partners.
Homework Answers
Solution
Working
Duffy: Gladwin
$80000 : $20000
1:4
Net income = $90000
Share of Duffy 90000*1/5 = $18000
Share of Gladwin 90000*4/5 =$72000
Journal entry
By Net income A/c dr……. $90000
To Duffy Capital A/c …. $18000
To Gladwin Capital A/c …. $72000
( being net income is distributed to the partners in the capital sharing ratio)
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